UnitedHealth’s Shares Decline After Company Lowers Profit Forecast

UnitedHealth Group’s shares experienced a significant drop after the healthcare giant reduced its annual profit forecast, citing unexpected surges in care activity within its Medicare Advantage business.

The company announced on Thursday that it had revised its full-year outlook, reflecting unanticipated changes in member profiles at its Optum Health business, which impacted its planned reimbursements for 2025.

UnitedHealth’s Chief Executive Andrew Witty acknowledged that, while the company had expanded to serve more people with comprehensive services, it had not met its performance expectations. As a result, the company adjusted its earnings guidance, forecasting a range of $24.65 to $25.15 per share for the year, down from the previous forecast of $28.15 to $28.65. Adjusted earnings were revised to a range of $26 to $26.50 per share, a decrease from the earlier estimate of $29.50 to $30.

The revised guidance sent shockwaves through the stock market, causing UnitedHealth’s stock price to drop 19% to $474 in premarket trading. This sharp decline follows a 16% increase in the company’s stock value earlier this year, as of the previous day’s market close.

In its first-quarter results, UnitedHealth reported a profit of $6.29 billion, or $6.85 per share, a significant improvement from a loss of $1.41 billion, or $1.53 per share, in the same period last year. However, the company’s revenue of $109.58 billion, while showing a 9.8% year-over-year increase, fell short of analysts’ expectations of $111.58 billion.

UnitedHealthcare, the insurer’s main insurance and managed care business, saw a 12% increase in revenue, driven by a rise in customers with self-funded commercial benefits, which grew by approximately 700,000 members. Despite this, the company’s medical-care ratio, which measures the share of premiums spent on patient care, ticked up to 84.8% from 84.3% a year ago, reflecting ongoing challenges related to Medicare funding cuts and increased senior-care activity.

The unexpected surge in demand for healthcare services, especially within UnitedHealth’s Medicare Advantage plans, contributed to the higher-than-anticipated medical costs. The company had planned for an increase in costs for 2025, but the actual surge exceeded those expectations.

This outlook revision has also caused a ripple effect across the healthcare sector, impacting stocks of other major insurers such as Elevance, CVS Health, Cigna, Centene, and Humana, which saw declines ranging from 3% to 13% in premarket trading. Together, these losses have wiped out more than $130 billion in market valuation for the sector.

While UnitedHealth’s revised forecast reflects challenges faced by the company, CEO Andrew Witty remains focused on addressing these issues in order to position the company for long-term success. Despite the rough start to 2024 for health insurance stocks, particularly following higher medical costs, decreased government payments, and public dissatisfaction with the industry, UnitedHealth continues to adjust its strategies to meet market demands.

In contrast, hospital operators such as HCA Healthcare and Tenet Healthcare saw their shares rise between 3% and 7%, fueled by the growing demand for medical services as highlighted by UnitedHealth’s statements.

With input from the Wall Street Journal, Bloomberg, and CNBC.